Regulatory Right to Know Act of 1999

About the Author

Testimony before
theSubcommittee on National Economic Growth,
Natural Resources and Regulatory Affaris -Committee
on Government Reform -United
StatesHouse of
Representatives

Mr. Chairman, Members of the Committee: Thank you for inviting
me to testify on the Regulatory Right to Know Act of 1999 (H.R.
1074). I am Angela Antonelli, Director of The Thomas A. Roe
Institute for Economic Policy Studies at The Heritage Foundation.
The Heritage Foundation is a privately supported nonprofit
educational, public policy research organization that receives no
funds from government at any level. My testimony before you today
reflects my own views and not necessarily those of The Heritage
Foundation.

I will present some brief remarks, but ask that my full
statement be placed in the hearing record.

Mr. Chairman, I applaud you for your continued commitment to
making the federal regulatory system-its more than 55 agencies,
125,000 rule-writers, and $17 billion budget-accountable to the
American people for the more than 4,000 final rules they produce
each and every year. Since 1995, Congress has taken a number of
important steps to demand accountability and common sense in how
the federal government regulates and empower the public to play a
more informed role in shaping the federal government's regulatory
priorities. But, as a January 1999 report by the General Accounting
Office (GAO) reminds you, Congress cannot escape some blame for
creating the burden and complexities of the current system. Such a
report simply underscores the need for Congress to give itself and
the public more and better information on the need for and
consequences of regulation.

The Regulatory Right to Know Act of 1999 represents an important
step in that direction. It proposes to make permanent a report by
the White House's Office of Management and Budget (OMB), for which
Congress asked in each of the past three fiscal years (1997-1999).
Congress asked the OMB to report on the total costs and benefits of
federal regulation, provide estimates of the costs and benefits of
major rules (annual economic impact of $100 million or more),
examine the direct and indirect impact of rules on the private
sector and state and local governments, and provide recommendations
for the reform or elimination of federal regulatory programs.

Congress asked for these reports because the "public has a right
to know about the costs and benefits of federal regulatory
programs" and, empowered with that information, could more
effectively hold regulators accountable for improving efforts to
protect the public health, safety, and the environment. Indeed,
after three years and two reports to Congress, those who have long
supported the need for some basic system of regulatory accounting
can take comfort in knowing that the OMB's reports to date
demonstrate that such accounting not only is possible, but also has
the potential to become an extremely useful tool for policymakers
who seek to make regulatory investments in a way that maximizes
benefits while minimizing costs, thereby achieving the greatest
levels of protection possible for the money spent.

Why Regulatory Right to Know Is
Important

The health of our country's economy and, even more important,
the desire to achieve the highest levels of investments in public
health, safety, and environmental protections demand that Congress
empower itself and the public with the information and analysis
about the benefits and consequences of federal regulations or
regulatory programs. As one recent study notes, "[R]egulations can
become an obstacle to achieving the very economic and social
well-being for which they are intended." Until Congress and the
public demand more information and accountability from regulators
in order to engage them in a debate about regulatory priorities and
spending in the same way we do about the annual federal budget, not
much change can or should be expected. Such a proposal as the
Regulatory Right to Know Act of 1999 represents an effort to bring
the hidden costs and benefits of regulation into the sunlight so
that the public and its representatives can be better informed
about the less-than-obvious impacts of regulations and do a better
job of establishing regulatory priorities and spending.

Environmentalists, consumers, and others will cry, like Chicken
Little, that the sky will fall because of this proposal.
Ironically, they conveniently now will argue that the public's
right to know-to have more information instead of less-actually
threatens the public's health and well-being. Indeed, many of these
groups are interested in preserving and defending the current
system. But what are they really defending? Bureaucracies that are
accountable to no one; that demand and spend resources as though
they were unlimited; and that fail to set priorities. But what are
the real costs? A 1994 Harvard University study examines 500
life-saving interventions and concludes that we save 60,000 lives a
year less than we should because of our inability to set
priorities to protect the public from the most serious risks it
faces. The real costs are the lives that could have been saved but
were not-because we were denied information that could have helped
us to see what needed to be done versus what felt good to do.

More information and analysis of the impact of regulations,
whether it be proposals to add new regulations or those to
eliminate or modify existing regulations (and the information and
analysis required must be identical for all of these types of
proposals), would help Congress and further empower the public to
debate and decide the best allocation of national resources. I
strongly believe that a more informed, democratic process
ultimately will give us a country capable of devoting more,
not fewer, resources to the types of policies that will save more
lives, improve the quality of our lives and our environment, and
allow us to be more prosperous.

Such proposals as the Regulatory Right to Know Act of 1999 are
intended to give Congress and the public the very best information
and analysis available about important decisions affecting our
health and prosperity. I think most Americans would consider it
risky and dangerous to the future of their children if you rejected
research, analysis, and information that would empower Congress and
American families to work smarter and achieve higher levels of
protection and a better quality of life for every dollar spent.

Regulatory Right to Know: Building on
Lessons Learned

The Regulatory Right to Know Act of 1999 is a good proposal that
responds to a number of important and valuable lessons learned by
Congress and the public based on two annual OMB reports on the
costs and benefits of regulation:

Lesson #1: Aggregate costs and benefits are not nearly as
important as the assessment of the costs and benefits of individual
rules. As the OMB itself has noted, the "devil is in the
details" and this means examining individual regulations. Although
all studies may suggest that, in the aggregate, benefits outweigh
costs, what is more useful is the study that not only reviews the
aggregate but also contributes to an understanding of individual
regulations and whether each regulatory action in and of itself
generates more benefits than costs. In the case of the
Environmental Protection Agency's (EPA) Section 812 Clean Air Act
report, as the OMB points out, the "monetized benefit estimates
associated with reducing exposure to fine particulate matter (PM)
account for 90 percent of the total estimated benefits" (p. 29).
What this suggests is twofold:

Much of the benefit of the Clean Air Act over the past 20 years
now is to be derived from the EPA's latest and most controversial
rule-making on particulate matter; and By extension, many of the
other Clean Air Act regulations issued over the past 20 years often
had costs than far exceeded their benefits.

The EPA's study of the Clean Air Act over the past 20 years
would be of far greater credibility and value if it made an effort
to accomplish the very thing the Clinton Administration repeatedly
has indicated is more important than just producing aggregate cost
and benefit estimates: an examination of individual regulations to
determine what regulatory actions produce significant benefits and
which are less successful. It is precisely for this reason that the
findings of a study by Robert Hahn of the American Enterprise
Institute are much more useful to policymakers than the EPA Section
812 study. The Hahn updated study included by the OMB reviews 106
regulations and, as the OMB notes, concludes that "not all agency
rules provided net benefits. In fact, less than half of all final
rules provided benefits greater than costs...a few rules provided
most of the net benefits" (p. 25). This is precisely the type of
detailed information that regulators and policymakers need if they
strive to make better decisions in the future.

Lesson #2: The independent regulatory agencies issue rules
that have costs (and benefits) even if the OMB does not review
them. In response to public comment, the OMB includes in its
second report a review of economically significant rules covered by
the Congressional Review Act and the Unfunded Mandates Reform Act.
In doing so, the OMB acknowledges that such independent regulatory
agencies as the Federal Communications Commission and the
Securities and Exchange Commission issue major rules. Indeed,
during 1997, approximately one-third of the major rules issued were
from these two agencies alone. The OMB currently does not review
rules issued by independent regulatory agencies, regardless of
their costs and benefits. Nevertheless, the purpose the OMB's
report on the costs and benefits of regulation is to address both
in the aggregate and individually the costs and benefits of
all federal regulations. To the extent that many independent
agencies fail to do benefit-cost analysis, the OMB should develop
its own estimates and not continue to ignore the economic impact of
such rules as it does in its second annual report with the
statement,

Since we have used a criterion of using only agency or academic
peer reviewed estimates, we conclude that the 41 GAO reports
contain no information useful for estimating the aggregate costs
and benefits of regulation [p. 62].

If the OMB continues to refuse to provide the analysis, Congress
should make sure that independent agencies develop the capabilities
to evaluate the benefits and costs of their rules systematically
before imposing them on an unsuspecting public.

Lesson #3: Agencies lack consistency in their benefit-cost
methods. Although it is true that it is no easy task to go
about estimating the "impact of regulations on society and the
economy," many of the estimation challenges that the OMB faces
reflect the huge inconsistencies in methods used across federal
agencies in benefit-cost analyses. A May 1998 GAO report confirms
the wide variation in agency economic analyses. If the OMB's
current Best Practices guidelines for benefit-cost analysis were
enforced, many of these problems would have been mitigated long
ago. Congress should do nothing to interfere with efforts to
promote greater, more consistent use of the Best Practices
guidelines. There is no reason that agencies cannot follow one set
of guidelines. The continuing inconsistency in benefit-cost methods
reflects the fact that neither the President nor Congress has
demanded any better from the agencies.

Lesson #4: Regulators have incentives to understate costs and
overstate benefits. In its second annual report, the OMB
includes some retrospective cases studies. They highlight how
important it is for agencies to be held accountable for
reevaluating individual regulations and regulatory programs to
determine whether they achieved the benefits intended and at what
cost. One should not find it surprising that, when an agency is
interested in justifying a regulatory action, overstated benefits
and understated cost estimates often result. This suggests that
agencies must undertake such retrospective studies more routinely
and use them to inform future decisions and to consider reforming
or eliminating some existing programs.

Lessons #5: Because regulators are self-interested,
independent review is essential. The OMB must do what Congress
intended when its assigned this report to it and offer its own
independent, professional judgment about the consistency, quality,
and validity of agency benefit and cost estimates. In addition, in
the absence of agency estimates, the OMB should provide its own
estimates and/or incorporate any third-party studies on the direct
or indirect impact of such rules. As part of the executive branch,
however, it may never be possible for the OMB to offer an
independent review of agency analyses; thus the necessity to ensure
that any OMB report be subject to outside, independent review as
well as public comment. The OMB must be thorough in summarizing and
presenting both the comments of the any independent reviewer(s) and
the public in any final report to Congress. There has been concern
about the failure of the OMB to be sufficiently responsive to
public comments in the issuance of its final reports.

Lesson #6: The OMB and the regulators have the responsibility
for developing recommendations for regulatory reform. In
response to public comments, the OMB's second annual report
includes recommendations for the reform of certain regulatory
programs, such as food safety, airbags, drug labeling, and so
forth. Initially, the OMB took the position of including only those
recommendations suggested to it by the public. The only problem
with this approach is that the OMB and the regulatory agencies have
far more expertise and experience that the average American about
how effectively regulatory programs function. The OMB and the
regulatory agencies must take responsibility for providing the
public with policy recommendations for public comment. In addition,
I would suggest, too, that there is no particular reason that
Congress also would not want the public to know not only about
efforts to reform or eliminate regulatory programs or rules but
also any initiatives on the part of agencies to expand or add new
regulatory programs and provide the public with an opportunity to
comment on those proposals as well.

Lesson #7: The OMB and the regulators are not necessarily
interested in presenting information to Congress and the public in
a way that will be useful or helpful. Not surprisingly, just as
self-interested agencies have incentives to understate costs and
overstate benefits, they also have incentives to avoid
accountability whenever possible. Thus, it should come as no
surprise that the OMB's reports to Congress have not presented
information in the most easy-to-digest manner. For example, in its
second annual report, the OMB makes no real effort to

Summarize net benefits (that is, to do the math) for most of its
aggregate estimates or the estimates of individual rules; Present a
summary table that compares trends from year to year (would not put
1998 estimates side by side with 1997 estimates of the benefits and
costs of regulation); and

Give little, if any, economic context to the either the benefits
or costs of regulation. This last omission is perhaps the most
serious flaw. For example, put in its proper context, such as
relative to gross domestic product, the EPA 812 benefit estimates
suggest that the annual economic benefits of the Clean Air Act
alone exceeds that of the economic output of the agriculture,
forestry, fishing, and health care industries of the United States.
To its credit, the OMB in its second annual final report does point
out that

the expected value of the estimated monetized benefit for 1990
is $1.25 trillion per year. This estimate implies that the average
citizen was willing to pay over 25 percent of her personal income
per year to attain the monetized benefits of the Clean Air Act [p.
26].

When put in this context, such estimates are understandably
subject to a more critical eye.

Congress must work with the OMB to ensure that the information
provided is as easily digestible and understandable to the average
American as it can be. Regulators, serving as employees of the
American people, have the fundamental responsibility to explain how
rules impact individuals, households, businesses, and state and
local governments in ways so that, ultimately, the American people
can decide what their national priorities and spending will be.

Mr. Chairman, let me conclude by again congratulating you and
your colleagues on both sides of the aisle for understanding the
importance of the public's right to know more about the benefits
and costs of regulation. The Regulatory Right to Know Act is a good
step in the right direction because it (1) builds on the previous
accounting statements; (2) makes such an accounting statement
permanent so that the federal regulators start taking it seriously
and know they will be held accountable each year; and, most
important, (3) empowers the public to debate more effectively
regulatory priorities and spending in the same way they debate
federal budget priorities and spending each year by more
effectively linking the two together. I hope Congress will continue
to build on this framework in the years to come. The public stands
only to benefit by improving the ability of our federal regulatory
system to establish more effective regulatory priorities to improve
our country's investments in public health, safety, and the
environment while maintaining a strong economy.

Thank you, Mr. Chairman. I would be happy to answer any
questions.

Angela Antonelli is a former Director of the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
Foundation